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Gulf States Squeeze Suppliers

Feb. 23, 2013 - 03:21PM   |  
By PIERRE TRAN   |   Comments
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ABU DHABI — When the chief executive of French vehicle maker Nexter met with the deputy supreme commander of the UAE Armed Forces, he got a surprising remark about his company’s offer to sell 700 armored vehicles to the Arabian Gulf country.

“Give me your best price,” Crown Prince Sheikh Mohammed bin Zayed al-Nahayan reportedly said to Philippe Burtin on the first day of the International Defense Exhibition & Conference (IDEX), which finished last week.

Just two weeks earlier, Nexter had submitted what it thought was its best and final offer to the UAE.

So crucial is the deal for France, its defense minister, Jean-Yves Le Drian, had invited the senior Emirati official to visit Nexter’s stand in an effort to help the company’s bid.

Sheikh Mohammed also visited Dassault Aviation and went inside the exhibition stand to talk to new Chief Executive Eric Trappier.

Besides armored vehicles, Abu Dhabi is looking for a fighter to replace a 60-strong fleet of Mirage 2000-9 jets. The French Rafale is up against the Eurofighter Typhoon, Lockheed Martin F-16 and Boeing F/A-18, with Lockheed hoping eventually to sell the F-35.

The Emirati leader, however, made it clear to the French that a selection decision on the fighter would take another couple of years.

And while the show was going, UAE and British officials paid close attention to U.K. Prime Minister David Cameron’s efforts to sell the Eurofighter Typhoon during a visit to India. That British political pitch comes despite Delhi’s pick of Dassault as preferred bidder with its Rafale.

The Nexter exchange shows to what extent Arabian Gulf states have become buyers’ markets. Bids are still up for debate as Asian, European and U.S. companies more and more are seeing Bahrain, Kuwait, Qatar, Oman and Saudi Arabia as major markets, all the more enticing as the West cuts military spending.

The governments in the region may be wealthy, but they are looking to build their economies to create high-value jobs for a young and well-educated population and prepare for a time when the oil runs out.

The states in the Gulf Cooperation Council and nearby also are looking for political and military support from allies, as they see rising tension in North Africa, war in Mali, turmoil in Syria and Iran’s long shadow across the Arabian Gulf water.

A Deafening Silence

Despite the high-level visits, the UAE did not announce it had selected a new eight-wheel vehicle to replace its fleet of Russian BMP-3 armored vehicles.

Three contenders made it onto the shortlist: Nexter’s véhicule blindé de combat infantrie (VBCI) infantry fighting vehicle, Patria’s armored modular vehicle (AMV) from Finland and Otokar’s Arma from Turkey.

But Tawazun, a large UAE defense and industrial group, told the three companies to stand down.

“Not this week,” said Ahmed Al Nayali, Tawazun’s business development director, said on Feb. 20. Tawazun would be the joint venture local partner for the company picked to supply the armored vehicle.

A subcommittee of Tawazun executives and General Headquarters (GHQ) officers made a joint evaluation of specifications and price and submitted a report to a GHQ “higher committee” in early February.

The tender went “on hold” toward the end of 2012, for reasons unknown, but only for a few weeks. It is now up to the GHQ leadership to make a selection, Al Nayali said.

The authorities might reopen the tender, he said.

There were at least two views on Sheikh Mohammed’s asking Nexter for a best price, sources at the show said. Perhaps the figures were above budget and the UAE is looking to push the price down, one defense source said. A second source said the offer details may not have made their way to the highest level.

Nexter has not made a fresh offer since Sheikh Mohammed’s remark. Nexter last year said it slashed production costs by 25 percent to make the vehicle more competitive.

Rafales vs. Typhoons

The UAE is looking to make its procurement process more professional and transparent, a defense expert said.

That may partly explain why the authorities sought to calm things down on the fighter aircraft tender to replace the Mirages.

At the show, Christian Mons, head of Conseil des Industries de Défense Françaises, a trade body, said Feb. 17 that a fighter decision could be made around 2015 or 2016, Agence France-Presse reported. That was because the earliest deliveries of the UAE’s Mirage 2000 would be 30 years old by then.

Therefore, earliest deliveries of a Rafale would be in 2017 or 2018, Mons said.

Defense News reported two years ago that then-French President Nicolas Sarkozy, eager to sell the Rafale, asked a favor of the UAE: Speed up replacement of the Mirage.

The political signals have been sent to Paris. The timetable is now based on technical needs, not favors.

The Rafale’s fate in India is considered to be intertwined with its chances of success in the UAE, a British defense official said at the show.

The longer it takes for France to sell the Rafale to New Delhi, the more chances that gives Britain to push the Eurofighter there and also in Abu Dhabi.

Purchasing Rafale means India can modernize its industry with technology transfer and local assembly, a defense expert said in Paris.

New Delhi, however, wants Dassault to give program guarantees, even though the local prime contractor would be state-owned Hindustan Aeronautics Ltd. Dassault resists that as it sees too much risk, the expert said.

Dassault’s local industrial partner would be the Reliance group, which has little aeronautics competence.

The talks with India will likely take time. Parliamentary elections are due to be held next year, and if the Rafale talks are not concluded by year’s end, all bets are off for a contract in 2014 as the country goes to the polls.

That could leave a door open to Eurofighter in New Delhi, which the UAE is considering as a Mirage replacement.

Other signs point to the UAE picking the Eurofighter, a consultant said.

“It looks like Eurofighter will win out,” said Theodore Karasik, a director with consultancy Inegma.

The UAE’s purchase of Fire Storm from Rockwell Collins UK is a clue, as the targeting system is designed to work with the Eurofighter. London wants a semi-permanent base in the UAE and is deploying four minehunters and two frigates in the gulf, all of which helps to sell the Eurofighter, Karasik said.

A Key Region for the U.K.

Besides Paris, London also sees the Arabian Gulf region as an area of vital interest.

The Gulf Initiative, a range of cooperative projects including defense, is Britain’s way of boosting relations with the region, said Alan Malpas, regional director for the UK Trade & Investment Defence & Security Organisation.

Oman, which flew the Jaguar fighter and Strikemaster trainer and light attack jet, recently bought the Eurofighter and BAE’s Hawk 128 trainer. Qatar supplies 20 percent of Britain’s liquid natural gas, Malpas added. And Kuwait is also seen as a potential client for security deals.

Bahrain, which operates six Hawks, also is an important partner, and Britain is keen to strengthen links to North African states.

French Firms Look To the Gulf

MBDA, Nexter and Thales, all French companies, have a high interest in the area. The region accounts for 60 percent of the exports of missile maker MBDA, Chief Executive Antoine Bouvier said at the show.

“In this region, there are a number of opportunities for aircraft packages and air defense,” he said.

India also is seen as significant, with negotiations concluded for the Short-Range Surface-to-Air Missile program, which needs approval from the Finance Ministry and the Council Cabinet for Security, Bouvier said.

Oman, meanwhile, has yet to decide the weapons for its 12 Eurofighters, Bouvier said. In December, the Royal Guard of Oman carried out the 19th firing of a vertical launch Mica missile in its ground-based air defense, showing a high level of training, as the weapon had been delivered only a few weeks before, Bouvier said.

MBDA hopes to sell its whole range of missiles as part of a multi-layered air defense, including threats from theater ballistic missiles, he said. However, MBDA has not offered the VL Mica to Saudi Arabia, to avoid a conflict with Thales, which is looking to sell its Crotale new-generation (NG) weapon.

Thales’ talks with Saudi Arabia on the Crotale NG are going well, a company executive said.

“It is not a paper product,” the executive said.

For Nexter, a modernization of the UAE’s fleet of Leclerc heavy tanks with electronics and optronics is a medium-term prospect, Burtin said.

Nexter has offered licensed production of its VBCI fighting vehicle in the UAE tender and pitched a two-man 40mm gun turret and missile, he said. A UAE joint venture would be a base for re-exports in the region.

In Saudi Arabia, sale prospects of artillery ammunition are considered significant as the Army has bought the Caesar gun. There is also a fleet of 1,000 Saudi vehicles in need of modernization, he said.

Qatar is looking to form a brigade with cavalry, artillery and infantry elements, creating opportunities for the Caesar, Leclerc and VBCI.

At the same company level, Diginext, a subsidiary of privately owned Communications & Systèmes group, is holding talks with the UAE on setting up a tactical datalink center and creating a national standard datalink, said Eric Noel, business development director.

U.S. in the Gulf

Saudi Arabia was the first foreign visit by Lockheed Martin’s new chief executive, Marillyn Hewson, a company executive said. Hewson inaugurated the company’s new Riyadh headquarters in early February.

The U.S. company has teamed with Saudi Airlines as a local partner in its efforts to expand business in the kingdom.

Vehicle maker Oshkosh also looks to expand sales, with more than 3,000 defense vehicles operating in the gulf region.

There is business in support and maintenance, but the company also wants to sell new vehicles such as its light all-terrain vehicle, as forces “recapitalize” their vehicle fleets, said Serge Buchakjian, Oskhosh’s senior vice president and general manager of international programs.

The U.S.-built Patriot and Terminal High Altitude Area Defense missiles being bought by the UAE are mounted on Oshkosh vehicles.

The UAE and Saudi Arabia are the center of Oshkosh’s business gaze, but interest extends around the region to Jordan, Morocco and Egypt.

___________________

Christopher P. Cavas contributed to this report.

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